3 - How We Make Decisions

Summary

Three theoretical traditions dominate our understanding of decision-making. The rational actor model assumes individuals are self-interested and maximize their utility subject to budget and time constraints. When outcomes depend on the decisions of others, as in the problem of common pool resources, trust and norms can avoid support sustainability. Social psychological models examine the role of values, especially altruism and self-interest, beliefs, norms, identity, emotions, empathy and trust in decision-making. The heuristics and biases literature shows that decisions are often based on mental shortcuts that deviate from the rational actor model. Our tendency towards biased uptake of new information and communicating mostly with those similar to us can lead to polarization. The three theories can be viewed as complementary: each yields important insights into decision-making.